Your credit score will be taken into consideration for most business loan applications, but each lender will have their own requirements. Generally, though, the credit scores needed for business loans are 680 or higher for traditional bank or SBA loans, 630 for business lines of credit or equipment financing, 600 for short-term financing, and 550 for merchant cash advances. Your credit score will also affect the interest rate and other terms of your loan.
The process of getting a small business loan is generally a complicated one. You’ll have to meet many different business loan requirements, which change depending on the loan product you want and the lender you work with. Among those fluctuating factors will likely be a minimum credit score for business loan eligibility.
Credit scores are a crucial factor in the loan underwriting process since they help determine how trustworthy a borrower really is. The more creditworthy the borrower, the less risk that borrower poses to the lender. On the other hand, business owners with lower credit scores might have a tougher time securing the loans they want—or be shut out of certain loan types entirely.
But every type of loan, and every lending institution, will require a different minimum credit score to consider a borrower’s eligibility. With that in mind, let’s explore the different credit scores needed for business loans.
There is no universal credit score minimum requirement for all business loans. Additionally, there are some loans with no credit check requirements. However, most loan products will take your credit score into consideration when deciding whether to work with you.
Put simply, the stronger your personal credit score, the easier it will be to get a business loan. Plus, your credit score doesn’t only determine your eligibility for a given business loan, it also determines the terms that your business loan will ultimately come with, such as loan amount, APR, repayment schedules, etc.
Of course, your other credentials—like how long you’ve been in business, your annual revenue, and your business credit score—might affect your business loan options and terms, but your personal credit score will often be the biggest factor in determining your funding search. Here’s a breakdown of the type of financing you’ll likely qualify for depending on your credit score:
With these ranges in mind, you may also be curious about how they apply more specifically to some of the most common types of business loans.
Depending on the loan candidate and the loan program, the SBA can offer the highest capital (into the millions), the lowest interest rates (single digits), and the longest repayment periods (decades) on the market. They’re super desirable, which means you’ll be competing with a lot of other small business owners for those great terms.
Although the SBA really aims to provide opportunities to lots of different types of business owners and doesn’t require a certain credit score, realistically, you want to come in as strong as you can. You’ll want to shoot for a score of at least 680, if you’re applying for an SBA loan, while also having exceptional credentials in all other areas of your business.
Like SBA loans, term loans from traditional lending institutions like local banks, commercial banks, and credit unions tend to carry the most desirable terms. The most eligible borrowers might be able to fetch hundreds of thousands of dollars in capital (or millions, if you’re talking commercial banks). They also offer long repayment periods and low interest rates.
As you might expect, only the borrowers that the bank underwriters deem the most reliable will be accepted: Think many years in business, high annual revenue, steady profitability, and, of course, an excellent credit score. In reality, you’ll really want to be coming in at the low 700s here at minimum, although high 600s may be considered as well.
If you need money to purchase vehicles, machinery, computers, or any other equipment needed to run your business, an equipment loan might be the way to go. It’s a collateralized loan, which means the lenders can seize and sell that equipment in case the borrower fails to repay their loan.
Because they’re guaranteed collateral, lenders aren’t taking on quite as much risk in extending equipment loans. That’s good news for borrowers with lower credit scores. A credit score of 630 may be enough to secure this type of financing. The rest of your loan terms will depend on the actual equipment you’re looking to finance—how long it’ll last, what industry it’s for, and how universal its use is.
Short-term loans from alternative lenders are a great option for a lot of borrowers that need faster turnaround time on financing. Online platforms have streamlined the application process, sped up the time to funding, and, for the most part, eased eligibility requirements for short-term loans.
With short-term loans, capital amounts tend to cap at $250,000 and repayment periods range between three to 18 months. Compared to the millions of dollars in capital and decades-long repayment periods that the SBA can offer (to its most eligible candidates, of course), short-term loans from alternative lenders pose a lower risk.
Generally, you’ll have a shot at securing a short-term loan from an alternative lender with a minimum credit score of 600. But, as a rule, the lower your credit score, the higher your interest rates will be.
With all of this information in mind, you may be wondering why your credit score—especially your personal credit score—is so important when applying for business loans in the first place. During the small business loan underwriting process, underwriters evaluate risk to the lender—meaning the possibility that the borrower will not repay their debt. Several factors can signal potential risk: a business is too new or revenue is too low, for example. So, how does your credit score come into play?
Your credit score is a historical measurement of your financial responsibility. So, if you were unable to repay your personal debts on time in the past, it’s a reasonable bet that you’re not going to pay off your business’s debts on time, either.
On the other hand, if your personal financial history is mostly free of faults (like tax liens, bankruptcies, and judgments), then there’s a good chance you’ll stay on top of your business’s financials, too. Of course, you may also have a business credit score. While lenders typically put more emphasis on personal credit scores, having strong personal and business credit scores will only help you qualify for the most affordable financing options (SBA and bank loans). Let’s explore what goes into both personal and business credit scores so you can understand how to best set your business up for success.
When you hear the words “credit score,” you’re probably thinking about your personal credit score. For the most part, that’s what lenders are thinking about, too. And that’s because it’s one of the best indications of your fiscal responsibility.
About your FICO score: There are three major credit bureaus that each calculate your personal credit score: Equifax, TransUnion, and Experian. And the number they give you doesn’t come from thin air. Rather, it’s pretty unified. The most common method of evaluating credit is with the FICO score, which comprises a few different factors in your credit profile to come up with a number.
Each credit bureau uses their own FICO algorithm to come to a number. And that means they might all weigh those factors differently. It also means that your credit score might alter slightly (think a 20-point difference) across all three of these bureaus.
While each algorithm weighs credit activity differently (and no credit bureau will share exactly how they calculate their scores), your score is impacted by:
Personal credit scores usually range between 300 and 850. As mentioned above, you’ll likely need a credit score of at least 550 to qualify for the most lenient financing options—namely, short-term financing and merchant cash advances. Because they assume greater risk, these financing options are much more expensive for the borrower than more traditional financing options.
Like your personal credit score, your business credit score is a measure of your historical reliability with your financial commitments. But this, like you might guess, specifically tracks your business’s financial history.
Equifax, Experian, and Dun & Bradstreet all measure business credit scores, but Dun & Bradstreet is the largest and most popular agency. They’ll calculate your number on a scale from one to 100.
You also might encounter something called a FICO SBSS (Small Business Scoring Service) score. As its name suggests, the FICO SBSS score is particular to small businesses. It won’t be a necessary component of every business loan application, but you definitely need it if you’re applying for an SBA loan. Your FICO SBSS score will land somewhere between zero and 300.
About your business credit score: This is similar to your personal credit score, but the bureau will also consider things like the size of your company, your industry’s risk factors, and relationships with vendors. And they’re mostly calculated according to public documents—as opposed to personal credit scores, which are determined based on private information.
If you don’t have a business credit score, don’t worry too much. The vast majority of small business loan applications will consider your personal credit score over your business credit score, and most don’t require a business credit score at all. You’ll really only need to provide a business credit score if you’re applying for an SBA loan or a term loan from a bank.
However, you can also take action to improve your business credit score as well.
Your credit score is one of the most important factors that lenders consider in your loan application since it’s essentially a measure of your financial responsibility. Still, your credit score is just one part of your business’s holistic financial profile, every part of which underwriters take into account during the application process.
Lenders require a different minimum credit score for loan eligibility. Keep in mind that the higher your credit score, the more affordable loan options you’ll qualify for—think high amounts with low interest rates and long repayment terms. However, if your credit score isn’t excellent, you still have options. The important thing to remember is that your credit is one piece of your business loan application. While you want this number to be as high as possible, you also want to make sure your other business credentials are strong too. This way, you’ll have the best options available to you.
Caroline Goldstein is a contributing writer for Fundera.
Caroline is a freelance writer and editor, specializing in small business and finance. She has covered topics such as lending, credit cards, marketing, and starting a business for Fundera. Her work has appeared in JPMorgan Chase, Prevention, Refinery29, Bustle, Men’s Health, and more.